Mum and dad to the rescue with joint mortgage deal
THE young couple are in despair after being refused the mortgage advance needed to buy their first home. Yet all is not lost – a jointborrower-sole-proprietor (JBSP) deal might prove their saviour.
Just so long as family and friends are prepared to rally round.
Money.co.uk commented: “This type of mortgage means people can help someone they care about. The good news is that more lenders are offering JBSP mortgages and the deals come with rates as competitive as standard mortgages.”
Institutions include Barclays Bank, and building societies, the Hinckley & Rugby, Skipton and the Tipton & Coseley.
Up to four people can buy a home together but with just one owning it. The others are not on the title deeds and have no legal claim including over any increase in its value.
Though in most cases it is likely to be parents who take the plunge, the arrangement can extend to siblings or even mates.
All borrowers have joint responsibility for the mortgage payments, which lowers the risk for lenders.
However, Money.co.uk cautioned: “If one of you cannot make the repayments, the others are liable to cover the whole amount between them.
“Therefore, you should only take out a JBSP mortgage with someone you trust and whose financial affairs you understand.”
The party that has agreed to go on the mortgage can’t be released until son or daughter has sufficient income, which can affect the individual’s own finances.
Consider too how you would fare if you became ill and couldn’t work or if you lost your job. Income protection insurance is one way of covering bills, including mortgage repayments.
As for Stamp Duty, ordinarily, if you were buying a property with someone who has a home already, the purchase would attract a three per cent second home rate. With a JBSP mortgage, the other parties avoid triggering this charge.
All borrowers are scrutinised in the manner of a standard mortgage, with expenses and income taken into account to measure affordability.
Borrowers must meet the lender’s criteria, including age limits, some providers requiring applicants be no older than 70 at the end of the term, others setting it at 80.
Nedwallet states: “Couples seeking a buy-to-let property when one partner has a considerably lower income than the other, or even no income, can use them to their advantage.
“Under a JBSP mortgage, the higher earner can help contribute to the mortgage, while the ownership of the property and the income in the form of rent remain in the lower earner’s name, thus reducing the couple’s tax bill.
“JBSP mortgages are also particularly helpful for people who own a business or other venture. If the business fails and its proprietor’s name is on the title deeds, the home could be seized or taken as payment for any debt.”
There are other options:
Guarantor mortgage: a guarantor, typically a parent, offers savings or their own home as collateral in place of a deposit. This means the person applying for the mortgage can do so with little or no cash.
Tenants-in-common mortgage: borrowers each buy a share of a property, which they can sell independently of the other tenant owners.
Shared ownership: borrowers use a mortgage to acquire a share of a home and pay rent on the rest.
Rent to Buy: tenants pay subsidised rent on a new-build home while saving a deposit that will allow them to purchase the property or a share of it.
Taking on a JBSP mortgage should not be taken lightly. It is a good idea for all parties to take legal advice – indeed, some lenders will insist on this.